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Cutting property taxes should be city’s goal

Originally published in the Baltimore Business Journal

Economic & Fiscal Policy, Property Taxes, Taxes

by Christopher B. Summers

OP-EDS

FEBRUARY 19, 2016 Bookmark and Share

Tax rates giveth and tax rates taketh away.

That is the lesson for Maryland after General Electric announced it would move its headquarters, workforce and considerable prestige from Connecticut to Massachusetts.

The announcement in January cast a spotlight on the role tax policy plays in shaping a state’s economic future. Maryland — and especially Baltimore — can no longer treat employers simply as a source of tax revenue. We must treat them first as a source of innovation and opportunity for our citizens.

GE chose to leave Connecticut because Gov. Dannel Malloy enacted nearly $1 billion in new businesses taxes last June. The tax grab marked the fifth time in five years that Connecticut raised GE’s taxes.

GE leaders warned that the taxes would force the company to, “seriously consider whether it makes any sense to continue to be located in this state.” The warning fell on deaf ears.

To capitalize on its neighbor’s overreach, leaders in Massachusetts and Boston offered GE a combination of infrastructure improvements and tax breaks, including $25 million in property tax relief. The gambit worked.

Here in Maryland, state and local leaders can go one step further. Rather than offer piecemeal property tax breaks to select companies, Baltimore should lower its property tax rate for all property owners, from large employers to homeowners.

From Baltimore to Boston, reducing property tax rates can be a catalyst for economic growth and help chip away at chronic urban poverty. Baltimore’s property tax rate of $2.24 per $100 of assessed value is more than twice that of every bordering jurisdiction. Punitive tax rates push employers and jobs to the suburbs, leaving downtown Baltimore with a 17.1 percent office vacancy rate compared with 14.9 percent for suburban Baltimore.

To attract more good jobs to Baltimore, policy makers must adopt the most competitive property tax rate in the region: $1 per $100 of assessed value. City Council members Carl Stokes and Nick Mosby have embraced property tax relief to varying degrees. The Greater Baltimore Committee has also called property tax rate restructuring, “a genuine opportunity to grow the city’s population, its tax base and the middle income class.”

History proves that such a move can help reverse Baltimore’s population exodus and increase tax coffers while still protecting core government services. Massachusetts capped its property taxes in 1980 despite protests that the lost revenue would hurt public education.

Three decades later, Massachusetts boasts one of the top school systems in the country. Thanks to a statewide referendum (Proposition 13), San Francisco cut its property tax rate 57 percent in 1978, and limited assessment increases to 2 percent annually. Research from our Institute shows that within four years the city was collecting 66 percent more inflation-adjusted dollars and kick-started a historic economic renaissance that continues today.

Tax policy is not an abstract debate. It instigates the movement of people, money, jobs and opportunities from high-tax locales to low-tax ones.

In the context of GE’s drama, the question is whether Maryland and Baltimore will follow in Connecticut’s steps or whether it will learn from Boston’s good fortune and make Baltimore a better place to own and invest in property. We hope it is the latter.

Christopher B. Summers is president of the Maryland Public Policy Institute, a nonpartisan research and education organization that focuses on state policy issues. He can be reached at csummers@mdpolicy.org.